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LETTER OF THE TAX COMMITTEE OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF KAZAKHSTAN

of April 6, 2004 No. NK-UMN-09-4-21/2695

The Tax Committee of the Ministry of Finance of the Republic of Kazakhstan, having considered the letter of closed joint stock company, concerning the taxation of the income of nonresidents, reports the following.

Follows from the letter that between closed joint stock company and the Russian company performing activities in the Republic of Kazakhstan without formation of permanent organization the agreement according to which the Russian company provides in lease of closed joint stock company the aircraft with crew for accomplishment of commercial air cargo carriages is signed. According to the registration certificate of the civil aircraft, this aircraft is entered in the State register of Civil aircrafts of the Russian Federation.

According to the subitem 10) of article 178 of the Code of the Republic of Kazakhstan "About taxes and other obligatory payments in the budget" (further - the Tax code) income gained from leasing of the property which is in the Republic of Kazakhstan is the income from sources in the Republic of Kazakhstan.

Thus, the income of the Russian company from leasing of the aircraft with crew of closed joint stock company is the income from sources in the Republic of Kazakhstan and according to article 179 of the Tax Code is subject to the taxation at payment source in the Republic of Kazakhstan.

At the same time considering that between the Republic of Kazakhstan and the Russian Federation the Convention on avoidance of double taxation and prevention of tax avoidance on the income and the capital is signed (further - the Tax convention), the nonresident has the right to apply provisions of such Tax convention.

According to article 8 of the Tax convention the income of resident of the Contracting State from leasing of vehicles, and also containers and the equipment for their operation relating to them in international carriages, is assessed with tax only in this State.

Besides, according to Item 36 of the Instruction on procedure for application of Conventions (Agreements) on avoidance of double taxation and prevention of tax avoidance on the income and the capital (property) signed by the Republic of Kazakhstan with foreign states approved by joint orders of the Minister of Finance of the Republic of Kazakhstan of December 2, 1999 No. 643 and the Minister of state revenues of the Republic of Kazakhstan of December 2, 1999 No. 1478 and registered in the Ministry of Justice of the Republic of Kazakhstan on January 6, 2000 No. 1021 (further - the Instruction), the profit got from lease sea, aircrafts or the land transport on completely equipped supplied charter with crew, shall be considered as profit on transportation of passengers or freights.

Thus, the income of the Russian company from leasing of the air sudk with crew used in international carriages is subject to the taxation in the country of residence of the Russian company according to Art. 8 of the Tax convention.

At the same time the procedure for application of provisions of the Tax convention is stipulated in Clause 199 Tax codes.

According to the tax legislation of the Republic of Kazakhstan payment of the VAT is performed only from those revolutions which are made in the territory of the Republic of Kazakhstan and are not included in the list of the exempted turnovers.

By Item 1 of article 221 of the Tax Code it is determined that works, the services provided by the nonresident who is not the taxpayer on value added in the Republic of Kazakhstan are turnover of the taxpayer of the Republic of Kazakhstan getting job, services if the place of their realization is the Republic of Kazakhstan, and is subject to taxation on value added according to the Tax code.

At the same time according to the subitem 1) of Item 2 of article 215 of the Tax Code if works, services are connected directly with real estate, then the place of rendering of services the location of real estate is recognized.

According to Item 2 of Article 117 of the Civil code the aircrafts which are subject to state registration are equated to real estate.

Proceeding from the above, the place of rendering of services on leasing of the aircraft is the location of the vessel which is determined as the place of state registration of such vessel.

Thus, if closed joint stock company leases the aircraft from the nonresident and such vessel is not subject to state registration in the Republic of Kazakhstan, that is belongs to the real estate of foreign state, then such lease does not join in leviable turnover on the VAT at closed joint stock company and is not subject to VAT liability according to article 221 of the Tax Code.

In case closed joint stock company leases the aircraft from the nonresident, and such vessel is subject to state registration in the Republic of Kazakhstan, that is the location of the real estate determines the Republic of Kazakhstan, then such lease joins in leviable turnover on the VAT at closed joint stock company and is subject to VAT liability according to article 221 of the Tax Code.

First Deputy Chairman of the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan

H. Usenova

 

Disclaimer! This text was translated by AI translator and is not a valid juridical document. No warranty. No claim. More info

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